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Does Financial Development Lower Environmental Quality in Saudi Arabia? Fresh Evidence from Linear and Non-linear Specifications

Muhammad Shahbaz (), Ilhan Ozturk () and Amjad Ali ()

International Journal of Economics and Empirical Research (IJEER), 2016, vol. 4, issue 7, 376-392

Abstract: Purpose: This study contributes in existing literature by investigating the impact of financial development on CO2 emissions in Saudi Arabia over the period of 1970-2012. Methodology: We have applied the Bayer-Hanck cointegration approach for long run relationship and innovative accounting aaproach to examine the causality between the variables. Findings: Our results indicated that there is cointegration relationship between the variables. Financial development adds in CO2 emissions but economic growth declines it. The impact of electricity consumption on CO2 emissions is positive and exports also boost CO2 emissions. The relationship between financial development and CO2 emissions is U-shaped i.e. financial development declines CO2 emissions initially but increases it may be due to relaxed regulations regarding environmental degradation. Thus, it can be concluded that CO2 emissions are mainly determined by financial development, electricity consumption and exports. Recommendations: Since Saudi Arabia has environmental problems due to growing in electricity consumption, financial development and exports, it should continue to enforce environmental laws for improving environmental quality in the country.

Keywords: Carbon Emissions; Dinancial Development; Saudi Arabia (search for similar items in EconPapers)
JEL-codes: C32 O52 Q43 Q53 Q56 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:ijr:journl:v:4:y:2016:i:7:p:376-392